June 28, 2013

We added/traded a few issues this week buying during Monday’s
200 point drop and selling after the Tuesday/Wednesday/Thursday recovery. See
below:

We get mail

Dear Bud

Was that the correction?

Dear XXXX

I don't think so but....

in the midst of strong bull moves over the past 20 years 5%
to 7% corrections have been sufficient to wring excess
out of the markets. That is why I did a bit of buying during the 200 point drop
on Monday that had the S&P 500 down 7% from its yearly high. But I do think
that after quarter end this week that markets will sell off more - I would be
more content adding money if they would do so-and that is why I haven't
purchased more. I was obviously early in going to cash this year but we had
such a good year last year that I am satisfied with my actions for now.

The economy is recovering but stocks have also and there is
a lot of speculation going on in the high flyers. For a sustained move higher
from these levels it would be healthier if more fear came back into markets.

Bud

*****

Summer Solstice June 21, 2013

We did nothing again this
week. Markets
were down big time on Thursday and flat on Friday as Quadruple Witching,
China’s overnight lending rates and Big Ben’s comment about bond buying
suggested caution in the midst of the euphoria of higher stock prices. *****

The
world's last telegram message will be sent somewhere in India on July 14.

That missive
will come 144 years after Samuel Morse sent the first telegram in Washington, and seven years after Western
Union shuttered its services in the United States. In India, telegraph services
were introduced by William O'Shaughnessy, a British doctor and inventor who
used a different code for the first time in 1850 to send a message.

The BSNL board,
after dilly-dallying for two years, decided to shut down the service as it was
no longer commercially viable.

"We were
incurring losses of over $23 million a year because SMS and smartphones have
rendered this service redundant," Shamim Akhtar, general manager of BSNL's
telegraph services, told the Monitor.

Profits Without
Production

One lesson from
recent economic troubles has been the usefulness of history. Just as the crisis
was unfolding, the Harvard economists Carmen Reinhart and Kenneth Rogoff — who
unfortunately became famous for their worst work — published a brilliant book with
the sarcastic title “This Time Is Different.” Their point, of course, was that
there is a strong family resemblance among crises. Indeed, historical parallels
— not just to the 1930s, but to Japan in the 1990s, Britain in the 1920s, and
more — have been vital guides to the present.

Yet economies
do change over time, and sometimes in fundamental ways. So what’s really
different about America in the 21st century?

The most
significant answer, I’d suggest, is the growing importance of monopoly rents:
profits that don’t represent returns on investment, but instead reflect the
value of market dominance. Sometimes that dominance seems deserved, sometimes
not; but, either way, the growing importance of rents is producing a new
disconnect between profits and production and may be a factor prolonging the
slump.

To see what I’m
talking about, consider the differences between the iconic companies of two
different eras: General Motors in the 1950s and 1960s, and Apple today.

Obviously, G.M.
in its heyday had a lot of market power. Nonetheless, the company’s value came
largely from its productive capacity: it owned hundreds of factories and employed around 1
percent of the total nonfarm
work force.

Apple, by
contrast, seems barely tethered to the material world. Depending on the
vagaries of its stock price, it’s either the highest-valued or the
second-highest-valued company in America, but it employs less than 0.05 percent
of our workers. To some extent, that’s because it has outsourced
almost all its production overseas. But the truth is that the Chinese aren’t making that much money from
Apple sales either. To a large extent, the price you pay for an iWhatever is
disconnected from the cost of producing the gadget. Apple simply charges what
the traffic will bear, and given the strength of its market position, the
traffic will bear a lot.

Again, I’m not
making a moral judgment here. You can argue that Apple earned its special
position — although I’m not sure how many would make a similar claim for
Microsoft, which made huge profits for many years, let alone for the financial
industry, which is also marked by a lot of what look like monopoly rents, and
these days accounts for roughly 30 percent of total corporate profits. Anyway,
whether corporations deserve their privileged status or not, the economy is
affected, and not in a good way, when profits increasingly reflect market power
rather than production.

Here’s an
example. As many economists have lately been pointing out, these days the old
story about rising inequality, in which it was driven by a growing premium on
skill, has lost whatever relevance it may have had. Since around 2000, the big
story has, instead, been one of a sharp shift in the distribution of income
away from wages in general, and toward profits. But here’s the puzzle: Since
profits are high while borrowing costs are low, why aren’t we seeing a boom in
business investment? And, no, investment isn’t depressed because President
Obama has hurt the feelings of business leaders or because they’re terrified by
the prospect of universal health insurance.

Well, there’s
no puzzle here if rising profits reflect rents, not returns on investment. A
monopolist can, after all, be highly profitable yet see no good reason to
expand its productive capacity. And Apple again provides a case in point: It is
hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its
business.

Or to put it
differently, rising monopoly rents can and arguably have had the effect of
simultaneously depressing both wages and the perceived return on investment.

You might
suspect that this can’t be good for the broader economy, and you’d be right. If
household income and hence household spending is held down because labor gets
an ever-smaller share of national income, while corporations, despite soaring
profits, have little incentive to invest, you have a recipe for persistently
depressed demand. I don’t think this is the only reason our recovery has been
so weak — weak recoveries are normal after financial crises — but it’s probably
a contributory factor.

Just to be
clear, nothing I’ve said here makes the lessons of history irrelevant. In
particular, the widening disconnect between profits and production does nothing
to weaken the case for expansionary monetary and fiscal policy as long as the
economy stays depressed. But the economy is changing, and in future columns
I’ll try to say something about what that means for policy.

Bank of America’s mortgage
servicing unit systematically lied to homeowners, fraudulently denied loan
modifications, and paid their staff bonuses for deliberately pushing people
into foreclosure: Yes, these allegations were suspected by any homeowner who
ever had to deal with the bank to try to get a loan modification – but now they
come from six former employees and one contractor, whose sworn
statements were added last week to a civil lawsuit
filed in federal court in Massachusetts.

“Bank of America’s practice is
to string homeowners along with no apparent intention of providing the
permanent loan modifications it promises,” said Erika Brown, one of the former
employees. The damning evidence would spur a series of criminal investigations
of BofA executives, if we still had a rule of law in this country for Wall
Street banks.

The government’s Home
Affordable Modification Program (HAMP), which gave banks cash incentives to
modify loans under certain standards, was supposed to streamline the process
and help up to 4 million struggling homeowners (to date, active permanent
modifications number about
870,000). In reality, Bank of America used it as a
tool, say these former employees, to squeeze as much money as possible out of
struggling borrowers before eventually foreclosing on them. Borrowers were
supposed to make three trial payments before the loan modification became
permanent; in actuality, many borrowers would make payments for a year or more,
only to find themselves rejected for a permanent modification, and then owing the
difference between the trial modification and their original payment. Former
Treasury Secretary Timothy Geithner famously described HAMP as a means to “foam
the runway” for the banks, spreading out foreclosures
so banks could more readily absorb them.

These Bank of America employees
offer the first glimpse into how they pulled it off. Employees, many of whom
allege they were given no basic training on how to even use HAMP, were
instructed to tell borrowers that documents were incomplete or missing when
they were not, or that the file was “under review” when it hadn’t been accessed
in months. Former loan-level representative Simone Gordon says flat-out in her
affidavit that “we were told to lie to customers” about the receipt of
documents and trial payments. She added that the bank would hold financial
documents borrowers submitted for review for at least 30 days. “Once thirty
days passed, Bank of America would consider many of these documents to be
‘stale’ and the homeowner would have to re-apply for a modification,” Gordon
writes. Theresa Terrelonge, another ex-employee, said that the company would consistently
tell homeowners to resubmit information, restarting the clock on the HAMP
process.

Worse than this, Bank of
America would simply throw out documents on a consistent basis. Former case
management supervisor William Wilson alleged that, during bimonthly sessions
called the “blitz,” case managers and underwriters would simply deny any file
with financial documents that were more than 60 days old. “During a blitz, a
single team would decline between 600 and 1,500 modification files at a time,”
Wilson wrote. “I personally reviewed hundreds of files in which the computer
systems showed that the homeowner had fulfilled a Trial Period Plan and was
entitled to a permanent loan modification, but was nevertheless declined for a
permanent modification during a blitz.” Employees were then instructed to make
up a reason for the denial to submit to the Treasury Department, which
monitored the program. Others say that bank employees falsified records in the
computer system and removed documents from homeowner files to make it look like
the borrower did not qualify for a permanent modification.

Senior managers provided
carrots and sticks for employees to lie to customers and push them into
foreclosure. Simone Gordon described meetings where managers created quotas for
lower-level employees, and a bonus system for reaching those quotas. Employees
“who placed ten or more accounts into foreclosure in a given month received a
$500 bonus,” Gordon wrote. “Bank of America also gave employees gift cards to
retail stores like Target or Bed Bath and Beyond as rewards for placing
accounts into foreclosure.” Employees were closely monitored, and those who
didn’t meet quotas, or who dared to give borrowers accurate information, were
fired, as was anyone who “questioned the ethics … of declining loan
modifications for false and fraudulent reasons,” according to William Wilson.

Bank of America characterized the
affidavits as “rife with factual inaccuracies.” But they match complaints from
borrowers having to resubmit documents multiple times, and getting denied for
permanent modifications despite making all trial payments. And these statements
come from all over the country from ex-employees without a relationship to one
another. It did not result from one “rogue” bank branch.

Simply put, Bank of America
didn’t want to hire enough staff to handle the crush of loan modification
requests, and used these delaying tactics as a shortcut. They also pushed
people into foreclosure to collect additional fees from them. And after
rejecting borrowers for HAMP modifications, they would offer an in-house
modification with a higher interest rate. This was all about profit
maximization. “We were regularly drilled that it was our job to maximize fees
for the Bank by fostering and extending delay of the HAMP modification process
by any means we could,” wrote Simone Gordon in her affidavit.

It is a testament to the
corruption of the federal regulatory and law enforcement apparatus that we’re
only hearing evidence from inside Bank of America now, in a civil class-action
lawsuit from wronged homeowners, when the behavior was so rampant for years.
For example, the Treasury Department, charged with specific oversight for HAMP,
didn’t sanction a single bank for failing to follow program guidelines for
three years, and certainly did not uncover any of this criminal conduct. Steven
Cupples, a former underwriter at Bank of America, explained in his statement
how the bank falsified records to Treasury to make it look like they granted
more modifications. But Treasury never investigated. Meanwhile, the Justice
Department joined with state Attorneys General and other federal regulators to
essentially bless this conduct in a series of weak settlements that
incorporated other bank crimes as well, like “robo-signing” and submitting
false documents to courts.

These affidavits, however,
should return law enforcement to the case. William Wilson, the case management
supervisor, alleges in his statement that this “ridiculous and immoral” conduct
continued through August of 2012, when he was eventually fired for speaking up.
That means Bank of America persisted with these activities for at least six
months AFTER the main, $25 billion settlement to which they were a party. So
state and federal regulators could sue Bank of America over this new criminal
conduct, which post-dates the actions
for which they released liability under
the main settlement. Attorneys general in New
York and Florida have
accused Bank of America of violating the terms of the settlement, but they
could simply open new cases about these new deceptive practices.

They would have no shortage of
evidence, in addition to the sworn affidavits. According to Theresa Terrelonge,
most loan-level representatives conducted their business through email; in
fact, various email communications have already been submitted under seal in
the Massachusetts civil case. State Attorneys General or US Attorneys would
have subpoena power to gather many more emails.

And they would have very
specific targets: the ex-employees listed specific executives by name who
authorized and directed the fraudulent process. “The delay and rejection
programs were methodically carried out under the overall direction of Patrick
Kerry, a Vice President who oversaw the entire eastern region’s loan
modification process,” wrote William Wilson. Other executives mentioned by name
include John Berens, Patricia Feltch and Rebecca Mairone (now at JPMorgan
Chase, and already
named in a separate financial fraud case). These are
senior executives who, if this alleged conduct is true, should face criminal
liability.

Bank accountability activists
have already seized on the revelations. “This is not surprising, but absolutely
sickening,” said Peggy Mears, organizer for the Home Defenders League. “Maybe
finally our courts and elected officials will stand with communities over Wall
Street and prosecute, and then lock up, these criminals.”

Sadly, it’s hard to raise hopes
of that happening. Past experience shows that our top regulatory and law
enforcement officials are primarily interested in covering for Wall Street’s
crimes. These well-sourced allegations amount to an accusation of Bank of
America stealing thousands of homes, and lying to the government about it.
Homeowners who did everything asked of them were nevertheless pushed into
foreclosure, all to fortify profits on Wall Street. There’s a clear path to
punish Bank of America for this conduct. If it doesn’t result in prosecutions,
it will once again confirm the sorry excuse for justice we have in America.*****

Flag Day June 14, 2013

There
was no activity this week. We await the correction that doesn’t want to arrive.*****

Bobby
Kennedy was shot 45 years ago last week. That assassination was a major event
of our life. Unless you were there and young and liberal you may not appreciate
the despair it caused and continues to this day to cause. We were McCarthy
supporters but that didn’t lessen the impact of Bobby’s death piled on top of
the killing of King and Malcolm and the Tet offensive and Kent State and , and,
and. Pete Hamill wrote this poignant obituary the next week.

LOS ANGELES -- It was, of
course, two minutes to midnight an the Embassy Room of the Ambassador Hotel was
rowdy with triumph. Red and blue balloons drifted up through three golden
chandeliers to bump against a gilded ceiling. Young girls with plastic Kennedy
boaters chanted like some lost reedy chorus from an old Ray Charles record. The
crowd was squashed against the bandstand, a smear of black faces and
Mexican-American faces and bearded faces and Beverly Hills faces crowned with
purple hair. Eleven tv cameras were turning, their bright blue arclights changing
the crowd into a sweaty stew. Up on the bandstand, with his wife standing just
behind him, was Robert Kennedy.

"I'd like to express my
high regard for Don Drysdale," Kennedy said.

Drysdale had just won his
sixth straight shutout. "I hope we have his support in this
campaign." There was a loud cheer. He thanks Rafer Johnson and Rosey Grier
(cheers) and Jesse Unruh (timid cheer) and Cesar Chavez (very loud cheer), and
he thanked the staff and the volunteers and the voters, and the crowd hollared
after every sentence. It was the sort of scene that Kennedys have gone through
a hundred times and more: on this night, at least, it did not appear that there
would be a last hurrah. Kennedy had not scored a knockout over Eugene McCarthy;
but a points decision at least would keep his campaign going.

"I thank all of
you," Kennedy was saying. "Mayor Yorty has just sent a message that
we have been here too long already" (laughter). "So my thanks to all
of you, and now it's on to Chicago..."

I was at the rear of the
stand, next to George Plimpton. Kennedy put his thumb up to the audience,
brushed his hair, made a small V with his right hand, and turned to leave. The
crowd started shouting: "We want Bobby! We want Bobby!" Plimpton and
I went down three steps, and turned left through a gauntlet of Kennedy
volunteers and private cops in brown uniforms.

We found ourselves in a long
grubby area called the pantry. It was the sort of place where Puerto Ricans,
blacks and Mexican-Americans usually work to fill white stomachs. There were
high bluish fluorescent lights strung across the ceiling, a floor of raw sandy-colored
concrete, pale dirty walls. On the right were a rusty ice machine and shelves
filled with dirty glasses. On the left, an archway led into the main kitchen
and under the arch a crowd of Mexican American cooks and busboys waited to see
Kennedy. Against the left wall, three table-sized serving carts stood end to
end, and at the far end were two doors leading to the press room where Kennedy
was going to talk to reporters.

Kennedy moved slowly into the
area, shaking hands, smiling, heading a platoon of reporters, photographers,
staffers, the curious, tv men. I was in front of him, walking backward. I saw
him turn to his left and shake the hand of a small Mexican cook. We could still
hear the chants of "We want Bobby!" from the Embassy Room. The cook
was smiling and pleased.

Then a pimply messenger
arrived from the secret filthy heart of America. He was curly haired, wearing a
pale blue sweatshirt and bluejeans, and he was planted with his right foot
forward and his right arm straight out and he was firing a gun.

The scene assumed a kind of
insane fury, all jump cuts, screams, noise, hurtling bodies, blood. The shots
went pap-pap-pap-pap-pap, small sharp noises like a distant firefight or the
sound of firecrackers in a backyard. Rosey Grier of the Los Angeles Rams came
from nowhere and slammed his great bulk into the gunman, crunching him against
a serving table. George Plimpton grabbed the guy's arm, and Rafer Johnson moved
to him, right behind Bill Barry, Kennedy's friend and security chief, and they were
all making deep animal sounds and still the bullets came.

"Get the gun, get the
gun."

"Rafer, get the
gun!"

"Get the fucking
gun!"

"No," someone said.
And you could hear the stunned horror in the voice, the replay of odd scenes, the
muffle of drums. "No. No. Nooooooooooo!"

We knew then that America had
struck again. In this slimy little indoor alley in the back of a gaudy
ballroom, in this shabby reality behind the glittering facade, Americans were
doing what they do best: killing and dying, and cursing because hope doesn't
last very long among us.

I saw Kennedy lurch against
the ice machine, and then sag, and then fall forward slowly, to be grabbed by
someone, and I knew then that he was dead. He might linger a few hours, or a
few days; but his face reminded me somehow of Benny Paret the night Emile
Griffith hammered him into unconsciousness. Kennedy's face had a kind of sweet
acceptance to it, the eyes understanding that it had come to him, the way it
had come to so many others before him. the price of the attempt at excellence
was death. You saw a flicker of that understanding on his face, as his life
seeped out of a hole in the back of his skull, to spread like spilled wine
across the scummy concrete floor.

It was as if all of us there
went simultaneously insane: a cook was screaming, "Kill him, kill him now,
kill him, kill him!" I tried to get past Grier, Johnson, Plimpton and
Barry to get at the gunman. The Jack Ruby in me was rising up, white, bright,
with a high-singing sound in the ears, and I wanted to damage that insane
little bastard they were holding. I wanted to break his face, to rip away
flesh, to hear bone break as I pumped punches into that pimpled skin. Budd Schulberg
was next to me; I suppose he was trying to do the same. Just one punch. Just
one for Dallas. Just one for Medgar Evers, just one for Martin Luther King. Just
one punch. Just one. One.

Kennedy was lying on the
floor, with black rosary beads in his hand, and blood on his fingers. His eyes
were still open, and as his wife Ethel reached him, to kneel in an
orange-and-white dress, his lips were moving. We heard nothing. Ethel smoothed
his face, running ice cubes along his cheeks. There was a lot of shouting, and
a strange chorus of high screaming. My notes showed that Kennedy was shot at
12.10 and was taken out of that grubby hole at 12.32. It seemed terribly
longer.

I don't remember how it fits
into the sequence, but I do have one picture of Rosey Grier holding the gunman
by his neck, choking life out of him.

"Kill the bastard, kill
that sum of a bitch bastard," a Mexican busboy yelled.

"Don't kill him, Rosey."

"Where's the doctor?
Where in Christ's name is the doctor?"

Grier decided not to kill the
gunman. They had him up on a serving table at the far end of the pantry, as far
as they could get him from Kennedy. Jimmy Breslin and I were standing up on the
table, peering into the gunman's face. His eyes were rolling around, and then
stopping, and then rolling around again. The eyes contained pain, flight,
entrapment, and a strange kind of bitter endurance. I didn't want to hit him
anymore.

"Where the fuck is the
doctor? Can't they get a fucking doctor?"

"Move back."

"Here comes a doctor, here's
a doctor."

"MOVE BACK!"

Kennedy was very still now.
There was a thin film of blood on his brow. They had his shoes off and his
shirt open. The stretcher finally arrived, and he trembled as they lifted him,
his lips moved, and the flashbulbs blinked off one final salvo and he was gone.

The rest was rote: I ran out out
into the lobby and picked up my brother Brian and we rushed to the front
entrance. A huge black man, sick with grief and anger and bitterness, was
throwing chairs around. Most landed in the pool. The young Kennedy girls were
crying and wailing, knowing, I suppose, what the guys my age discovered in
Dallas: youth was over. "Sick," one girl kept saying. "Sick.
Sick. What kind of country is this? Sick. Sick." Outside, there were cops
everywhere, and sirens. The cops were trying to get one of the wounded into a
taxi. The cabbie didn't want to take him, afraid, I suppose, that blood would
sully his nice plastic upholstery.

When we got through the police
barricades, we drove without talk to the Hospital of the Good Samaritan,
listening to the news on the radio. The unspoken thought was loudest: the country's
gone. Medgar Evers was dead, Malcolm x was dead, Martin Luther King was dead,
Jack Kennedy was dead, and now Robert Kennedy was dying. The hell with it. The
hatred was now general. I hated that pimpled kid in that squalid cellar enough
to want to kill him. He hated Kennedy the same way. That kid and the bitter
Kennedy haters were the same. All those people in New York who hated Kennedy's
guts, who said "eccch" when his name was mentioned, the ones who
creamed over Murray Kempton's vicious diatribes these past few months: they
were the same. When Evers died, when King died, when Jack Kennedy died, all the
bland pundits said that some good would come of it in some way, that the nation
would go through a catharsis, that somehow the bitterness, the hatred, the
bigotry, the evil of racism, the glib violence would be erased. That was
bullshit. We will have our four-day televised orgy of remorse about Robert Kennedy
and then it will be business as usual.

You could feel that as we
drove through the empty L.A. streets, listening to the sirens screaming in the
night. Nothing would change. Kennedy's death would mean nothing. It was just
another digit in the great historical pageant that includes the slaughter of
Indians, the plundering of Mexico, the enslavement of black people, the
humiliation of Puerto Ricans. Just another digit. Nothing would come of it.
While Kennedy's life was ebbing out of him, Americans were dropping bombs and
flaming jelly on Orientals. While the cops fingerprinted the gunmen, Senator
Eastland's Negro subjects were starving. While the cops made chalk marks on the
floor of the pantry, the brave members of the National Rifle Association were
already explaining that people commit crimes, guns don't (as if Willie Mays
could hit a homerun without a bat). These cowardly bums claim Constitutional
rights to kill fierce deer in the forests, and besides, suppose the niggers
come to the house and we don't have anything to shoot them with? Suppose we
have to fight a nigger man-to-man?

America the Beautiful: with
crumby little mini-John Waynes carrying guns to the woods like surrogate
penises. Yes: the kid I saw shoot Kennedy was from Jordan, was diseased with
some fierce hatred for Jews. Sam Yorty, who hated Kennedy, now calls Kennedy a
great American and blames the Communists. Hey Sam: you killed him too. The gun
that kid carried was American. The city where he shot down a good man was run
by Sam Yorty. How about keeping your fat pigstink mouth shut.

At the approach to the Good
Samaritan Hospital the cops had strung red flares across the gutter, and were
stopping everyone. A crowd of about 75 people were on the corner when we
arrived, about a third of them black. I went in, past those black people who must
have felt that there was no white man at all with whom they could talk. A mob
of reporters was assembling at the hospital entrance. The cops were polite,
almost gentle, as if they sensed that something really had had happened, and
that many of these reporters were friends of the dying man.

Most of the hospital windows
were dark, and somewhere up there Robert Kennedy was lying on a table while
strangers stuck things into his brain looking for a killer's bullet. We were
friends, and I didn't want him to die but if he were to be a vegetable, I
didn't want him to live either.

We drove home, through the
wastelands around L.A. and the canyons through the mountains to the south. When
I got home, my wife was asleep, the tv still playing out its record of the death
watch. Frank Reynolds of ABC, a fine reporter and a compassionate man, was so
upset he could barely control his anger. I called some friends and poured a
drink. Later I talked to my old man, who came to this country from Ireland in
flight from the Protestant bigots of Belfast 40 years ago. I suppose he loved
John Kennedy even more than I did and he has never really been the same since
Dallas. Now it had happened again.

"If you see Teddy,"
he said, "tell him to get out of politics. The Kennedys are too good for
this country."

I remembered the night in
1964, in that bitter winter after John Kennedy's murder, when Robert Kennedy
appeared at a St. Patrick's Day dinner in Scranton, Pennsylvania. He talked
about the Irish, and the long journey that started on the quays of Wexford and
ended in Parkland Hospital. He reminded them of the days when there were signs
that said "No Irish Need Apply" (and it was always to his greatest
dismay that so many sons of Irishmen he came across in New York were bigots and
haters). Bob told them about Owen O'Neill, an Irish patriot whose ideals had
survived his martyrdom. Men were crying as he read the old Irish ballad:

Oh, why did you leave us,
Owen?

Why did you die?...

We're sheep without a
shepherd,

When the snow shuts out the
sky.

Oh, why did you leave us,
Owen?

Why did you lie?

I didn't know. There was some
sort of answer for John Kennedy, and another for Robert Kennedy. But I had
learned that I knew nothing finally, that when my two young daughters present
the bill to me in another 10 years, I won't have much to say. I sat there
drinking rum until I was drunk enough to forget that pimpled face cracking off
the rounds into the body of a man who was a friend of mine. Finally, easily,
with the sun up, I fell asleep on the couch. I didn't have any tears left for
America, but I suppose not many other Americans did either.*****

A closely watched consumer
confidence number that routinely moves markets upon release is accessed by an
elite group of traders, for a fee, a full two seconds before its official
release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters,
the news agency and data provider, and the University of Michigan, which
produces the widely cited economic statistic, stipulates that the data will be
posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at
9:55 a.m., the data is distributed on a conference call for Thomson Reuters'
paying clients, who are given certain headline numbers.

But the contract carves out an
even more elite group of clients, who subscribe to the "ultra-low latency
distribution platform," or high-speed data feed, offered by Thomson
Reuters. Those most elite clients receive the information in a specialized
format tailor-made for computer-driven algorithmic trading at 9:54:58.000,
according to the terms of the contract. On occasion, they could get the data
even earlier—the contract allows for a plus or minus 500 milliseconds margin of
error.

In the ultra-fast world of
high-speed computerized markets, 500 milliseconds is more than enough time to
execute trades in stocks and futures that would be affected by the
soon-to-be-public news. Two seconds, the amount promised to "low
latency" customers, is an eternity.

For exclusive access to the
data, Thomson Reuters pays the University of Michigan $1 million per year,
according to the contract, in addition to a "contingent fee" based on
the revenue generated by Thomson Reuters.

The contract reviewed by CNBC
was signed in September of 2009. It expired a year later. Thomson Reuters and
the University Michigan confirmed that the relationship still exists.

In a statement, Thomson
Reuters said, "Through an agreement with University of Michigan, Thomson
Reuters is the exclusive distributor of the Thomson Reuters/University of
Michigan Surveys of Consumers to its clients through various subscription
services as well as to the general public via a press release. Details of the
tiered release of this data are provided openly to Thomson Reuters customers
and the wider public and anyone wishing to trade on this data can pay for the
service that best meets their data needs." *****

June 1, 2013

We keep trying to
trade the short term top ins GM by selling the warrants yet keep going back
into the warrants as we did today. One of these times we will hold on to them.
The trading has been profitable. We also added Facebook where are trading
hasn’t been so profitable. We are taking small positions looking for singles
not home runs in these overheated markets.

Markets dropped
last week so of course Bulls declined to 52% from 54% and Bears ticked up to
19% from 18%. Still way too many Bulls.

Jeff Saut has been right on the markets for the
past five years. Although his short term (next month) views don’t agree with
ours as to this present rally his discussion is worth a read.

With the Upside Dream Still Alive, the 'Buying
Stampede' Will Continue

Since the Dow Industrials closed up 8.60
points last Friday, the buying stampede is still in force with today being
session 102.

Over the long weekend, I decided to type the
words “buying stampede” into Google to see what popped up. To my surprise,
there were more than 2,000,000 “hits” on the phrase “buying stampede,” and many
of them were attributed to me. While that was a pretty humbling experience,
it also was surprising because I would have thought more investors would have
used that phrase in connection with the many upside rally skeins that have
occurred over the past dozen years.

The term “buying stampede” was first coined by
me back in the 1970s when I observed that runaway rallies tended to have a
rhythm to them. Indeed, a typical buying stampede lasts for 17 - 25 sessions
with only one- to three-session pauses, or pullbacks, before continuing to
trade higher. It just seems to be the rhythm of the “thing” in that it
tends to take that long to get everyone bullish enough to throw in their “bear
towels” and buy stocks just in time to make a trading top. While it’s true some
stampedes have lasted for 25 - 30 sessions, it is rare to see one extend for
more than 30 sessions.

Prior to the past few years. the longest
buying stampede chronicled in my notes of some 50 years was the 38-session
“march” into the August 1987 peak of 2722.42 by the Dow Jones Industrial
Average (INDEXDJX:.DJI),
which set the stage for the Dow Theory “sell signal” of October 15, 1987 and
subsequent stock market crash of October 19. There is actually a plaque that
resides in my office from a dear friend and stock broker, titled “Runaway” with
the record of Del Shannon’s hit tune “Runaway”
attached. The second longest stampede occurred a few years ago and lasted
for 53 sessions. However, the current buying stampede is nearly twice that long
since today is session 102!

I revisit the “buying stampede” theme this
morning because I have been deluged with emails asking, “Is the current
stampede over since the S&P 500 (INDEXSP:.INX) has closed down for three
consecutive sessions?” First, my stampede sequence uses only the Dow
Industrial, not the SPX. Second, it does not need any confirmation from
the Dow Jones Transportation Average (INDEXDJX:DJT), or any other index, like
Dow Theory needs. Third, it does not measure the percentage gain that will be
experienced by the Industrials during the stampede. Fourth, the buying stampede
concept is based only on my own observations of investors’ emotions and the
psychology I learned from the epic book Extraordinary
Popular Delusions and the Madness of Crowds by Charles
MacKay. Fifth, the reciprocal of a buying stampede is a “selling stampede,”
which uses the same day-count sequence, except on the downside. Sixth, since
the Industrials closed up 8.60 points last Friday, the buying stampede is still
in force with today being session 102.

So the upside “Dream Is Still
Alive,” and I continue to believe the SPX is going to
trade north of 1700 into the end of 2Q13 before becoming vulnerable to a more
significant decline beginning in the July/August timeframe. Obviously I have
never seen a buying stampede like this one, which has lifted the senior index
above a basing formation in the charts that was 13 years in the making. I have
commented on this upside breakout before having experienced the basing
formation, and subsequent upside breakout, of the “big based” 1966 - 1982
market that launched the secular bull market of 1982 - 2000.

I was reminded of the history of “big bases”
in an excellent slide deck that was sent to me over the weekend, which was
un-authored. he slides show that there have been four “big bases” since
1900 that have lasted for more than 12 years. The years in question are:
1906 - 1924 (18 years), 1929 - 1955 (26 years), 1966 – 1982 (16 years), and 2000
– 2013 (13 years), as can be seen in the chart below from said slide deck. The
author goes on to note, “The characteristics of the market when it breaks out
of a base that exceeds 12 years in length is different. Investor behavior
reflects an underlying distrust or disinterest and is characterized by
underinvestment in equities. This results in a rebound that is relentless,
providing little opportunity to buy on pullbacks.”

Following the end of a bear market, and the
initial "lift off" move of the beginning of a new bull market (Stage
1), there are tumultuous cries, "This is just a rally in an ongoing bear
market," which brings us to Stage 2 (Guarded Optimism). E-v-e-r-y rally
after a bear market bottom is encased with John Templeton’s
pessimism/skepticism as represented by comments like, "This is the last
chance to get out." Recall that was the media’s chant du jour after the
March 2009 bottom as various pundits were trotted out to tell us how bad things
were going to get. Yet, as participants realized their worst fears would not
materialize, a "guarded optimism" has set in whereby stocks are being
bought because of their dividend yield. As things continue to get better, that
"guarded optimism" should give way to ‘enthusiasm,’ or Stage 3.

Interestingly, in last Thursday’s conference
call with Richard Bernstein, Rich spoke of the same stages. He reminded us of
the selective memories investors have by stating that “uncertainty” spells
opportunity. To be sure, “fear and uncertainty” are the hallmarks of the first
seven innings of a secular bull market. When everyone is “certain,” that
typically means we are in the eighth inning of the “bull.” He went on to
reflect about the beginning of the 1982 - 2000 secular bull market, opining that
portfolio managers didn’t begin embracing stocks until 1985/1986, and that
individual investors didn’t do so until the first quarter of 1987. Moreover, he
noted that the same issues plaguing investors in 1982 and 1983 are the same
issues currently plaguing investors (slow growth, budget deficits,
entitlements, tax reform, etc.). Rich commented, “The equity markets don’t care
about the ‘absolute’ of good or bad conditions, but about things being better
or worse.” And clearly the US is getting better. He concluded with, “The
rotation out of bonds into stocks is not the right question. The right question
is about the great rotation out of non-US equities into US equities!”

Accordingly, it will be interesting to see if
that rotation continues this week because last week was the first weekly loss
in five weeks. The main culprit for the loss was Wednesday’s intraday 275-point
downside reversal. Indeed, an early morning 154-point rally by the INDU gave
way to a 122-point decline before firming into the close, leaving the senior
index down roughly 80 points. By the close the INDU had traced out what a
technical analyst would term an outside bearish reversal pattern, meaning
Wednesday’s intraday high, and intraday low, were above and below the previous
session’s high/low, suggesting the potential for further downside. And that is
what the equity markets attempted to build on the balance of last week without
a whole lot of success. Nevertheless, the SPX has fallen below my 1660 “energy
level” and as stated, “It is difficult for stocks to extend their rally with
the daily internal energy level so low.” So we enter this week with “guarded
optimism,” waiting to see if the bears can press their advantage on last week’s
stutter step.

The call for this week: While last Wednesday’s
downside reversal raised a “red flag,” it was not a 90% Downside Day, meaning
90% of total volume, and total points, traded did not come on the downside. So
I agree with my unknown author in believing that last week’s pause/pullback was
for buying.

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